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Legislative Assembly for the ACT: 2002 Week 6 Hansard (16 May) . . Page.. 1769 ..

MS TUCKER (continuing):

I note and support the fact that the government will not be underwriting these fidelity funds, but it will be taking on a new regulatory role in approving and setting the prudential standards for these funds. There is obviously a need to ensure that there are sufficient providers of building warranty protection in the ACT. Fidelity funds will provide an alternative source of cover to insurance companies, and I am attracted to the idea that they will be run as not-for-profit schemes.

I understand that the MBA is already interested in setting up its own scheme. My main concern with the government's proposal is about whether the fidelity funds and the insurance companies will be on a level playing field in providing warranty protection. Given that the provision of insurance is done in a private sector market, it is reasonable to seek fair competition between the various players in the market. The insurance industry is already subject to a federal regulatory framework, administered by the Australian Prudential Regulation Authority, APRA, and I am concerned that fidelity funds will fall outside the regulatory controls of APRA.

This bill in a sense sets up a parallel local regulatory framework to that of APRA, and the government has indicated that its proposed prudential standards will be based on the APRA standards. However, there is a danger that the two sets of standards will get out of sync and the level playing field will get tilted. I am also concerned that fidelity funds have never before been used to provide warranty protection in the Australian building industry, although they have been used in other contexts.

The ACT government needs to be very certain that regulatory control and the prudential standards will be strong enough to prevent a fidelity fund going bust in the future and the housing industry and house buyers being left in the lurch again. It is particularly worrying that the bill and the subordinate instruments have been developed in such a rush, increasing the potential for mistakes to be made or issues overlooked. The bill itself seems to assume that it contains mistakes by its inclusion of clause 58ZN, which allows the executive to make regulations to modify the act.

The scrutiny of bills committee commented that this is a very broad, Henry VIII power that goes beyond making technical adjustments to the act. New South Wales and Victoria have not gone down the path of fidelity funds to resolve their own problems with building warranty insurance. I understand that their approach has been to underwrite Dexta's home warranty business in the short term and to propose tighter restrictions on warranty cover to make it more viable for insurance companies.

While the ACT needs to be aware of what is happening in the states, I have regularly argued in this place that we should not be reducing our standards in the ACT just to comply with national schemes. However, we need to be sure that what is being proposed here will have a better outcome than what is happening in the states.

I am prepared to support this bill, as I hope it will provide more choice in building warranty protection without any reduction in the level of cover currently provided in the ACT. However, I do this with some hesitance. I have an amendment to address the issue that fidelity funds are not subject to APRA control, which I will talk about more in the detail stage.

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